Public sector employees prefer defined benefit (DB) pensions over other forms of retirement plans, such as 401(k)-type defined contribution (DC) individual accounts, according to a new study from the Washington-based National Institute on Retirement Security (NIRS). The study, which analyzed seven state retirement systems that offer a choice between DB and DC plans, found that 75 to 98 percent of new employees in those systems preferred DB plans, while 2 to 25 percent choose DC plans.

The new study, “Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers,” which was released Sept. 29, analyzed the retirement plans of the Colorado Public Employees’ Retirement Association, Florida Retirement System, Montana Public Employee Retirement Administration, North Dakota Public Employees Retirement System, Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and South Carolina Retirement Systems. The report includes a breakdown of new hire elections for each plan.

Other findings from the report include:

• DB pensions are more cost efficient than DC accounts because of higher investment returns and longevity risk pooling. • DC accounts lack supplemental benefits, such as death and disability protection. They still can be provided, but that requires extra contributions outside the DC plan, which are not deposited into the members’ accounts. • When states shift from DB pensions to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs. • A “hybrid” plan for new employees in Utah provides a unique case study in that it has capped the pension funding risk to the employer and shifted risk to employees.

“The research is clear that public employees highly value their pension benefits and will choose this retirement plan over an individual DC account,” Ilana Boivie, report co-author and NIRS economist, said in a statement. “These findings are not surprising and are consistent with NIRS’ recent opinion polling earlier that found 83 percent of Americans believe those with pensions are more likely to have a secure retirement.”

Boivie also said employers believe that pensions remain the most cost-effective way to fund a retirement benefit, and that switching from pensions to individual accounts can drive up costs for taxpayers. “These economic facts, coupled with strong employee preferences for pensions, suggests that public employers are unlikely to mimic the trend away from pensions that has occurred in the private sector,” she said.

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